Abercrombie & Fitch’s Situation: Analysts React: ‘A Proactive Step’

By Mark Gongloff

Abercrombie & Fitch shares are tumbling 7% this morning, making it the second-worst performer in the S&P 500, despite its brilliant move to pay The Situation not to wear its clothes.

The stock is falling not because of its efforts to improve its brand image by keeping it far away from the personage of Mike “The Situation” Sorrentino, of “Jersey Shore” infamy, but because of a disappointing conference call following its quarterly earnings report.

Not to worry, though: Analysts still lurve the company, as analysts are wont to do. At least two of them even love the Situation stunt.

ISI’s Omar Saad writes:

We applaud the decision to dissociate A&F brands from “The Jersey Shore” characters. Especially overseas, this is a proactive step to help maintain the brand’s emerging position as the beacon of casual American luxury. This is particularly important given that “The Jersey Shore” has taken its in-your-face, over-the-top antics to Florence, Italy this year for season 4.

If Europeans begin to associate A&F with boorish American behavior, it could dampen the brand’s sizable Europe opportunity just as the A&F flagship and Hollister expansion has begun to accelerate.

Alternatively, some brand skeptics have said that “the Situation” and fans of the show may actually represent the brand’s core demographic, at least domestically. Could some of these consumers be turned off by A&F’s snobby attitude toward one of its own consumers? We don’t know. We do recall the tide of negative feedback when Scope mouthwash listed Rosie O’Donnell on its list of least ’Kissable’ people, a move that backfired as Ms. O’Donnell mounted a powerful joint PR campaign with competitor Listerine.

Perhaps A&F should have approached “The Jersey Shore” cast quietly and out of the public eye. Or even more devious, the company could have anonymously sent Mr. Sorrentino unlimited product from competitor brands as a way to simultaneously get him to stop wearing A&F and sully the image of competing brands. However it plays out, this is a high profile, controversial PR move that brought a good bit of humor to our day. You know what they say, “any publicity is good publicity…”

Cowen & Co. analysts offer a list of reasons to buy Abercrombie stock, including #5, “The Jersey Shore cast may accept the company’s incentive to not been seen in the Abercrombie & Fitch brand!”

Stifel Nicolaus gets honorable mention for titling its earnings note “Abercrombie’s Tough ‘Situation,’” but then loses points for not mentioning The Situation at all. It merely says Abercrombie is in an old-fashioned tough situation, including higher costs and flagging domestic demand.

Following the company’s conference call we believe shares are reacting negatively to management’s cautious stance on a potential “double-dip recession,” Q3′s guidance which assumes gross margin erosion and modest deleverage on expenses & the lack of commentary on Aug comp-trend.

We believe the pullback in shares of ANF creates a compelling buying opportunity to own shares of this high-quality retailer.

Jefferies writes:

While management did not comment on August, we expect recent brand momentum to continue into the Fall season. A heightened focus on product (redesigned jeans, higher fashion mix) should also help differentiate the company and drive sales during this crucial shopping season.

BMO Capital Markets writes:

Our take is that fears regarding the macro environment are driving the stock price decline. This uncertainty was reflected in many of the questions on the call — but not the answers.

Management did not deviate from its usual cautious outlook, and reaffirmed confidence in achieving EPS of $4.75 in FY2012. We believe the significant strength in sales and margins reflects both the improvements made in the domestic business as well as flourishing international operations. We continue to like the stock and would be buyers on today’s weakness.

Honestly this upsets me, I'm a huge holister and abercrombie customer and I think it's really rude that they said that. I'm not a fan of the situation but who are they to say who can or cannot wear their clothes. Really disgusted

1:58 pm August 17, 2011

dave beall wrote :

Both Abercrummy and the idiots on some show they keep telling me there is some tv program about drugged up idiots in jersey, but I don't think it really exists..

Both items ,, if they exist are worthless,, we don't want to know about Jerseys DRUG problem and we don't wear high-buck-child-labor-produced cheap clothing, which is also garbage.

1:30 pm August 17, 2011

Anastasia Biewerhausen wrote :

I truly hope this shameless publicity stunt backfires on ANF by a million fold. It is incredibly naive of them to think that only fist pumping, bad behaving, jersey shore going teens watch and love the show. I hope young people realize that these companies are trying to dupe them and do anything to make them buy more. Tasteless and disgusting.

Thanks for reading MarketBeat. We would like to direct you to MoneyBeat, the Wall Street Journal’s brand new global blog. MoneyBeat unites MarketBeat, The Source, Overheard and all the Deal Journal blogs, bringing together all the market, M&A, IPO and hedge-fund news from those blogs into a 24-hour hub for finance news. Check it out and let us know what you think at moneyblog@wsj.com.

About MarketBeat

MarketBeat looks under the hood of Wall Street each day, finding market-moving news, analyzing trends and highlighting noteworthy commentary from the best blogs and research. MarketBeat is updated frequently throughout the day, helping investors stay on top of what’s happening in the markets. Lead writers Paul Vigna and Steven Russolillo spearhead the MarketBeat team, with contributions from other Journal reporters and editors. Have a comment? Write to paul.vigna@wsj.com or steven.russolillo@wsj.com.